RL Regi N.C., LLC v. Lighthouse Cove, LLC
| Decision Date | 20 August 2013 |
| Docket Number | No. COA12–1279.,COA12–1279. |
| Citation | 748 S.E.2d 723 |
| Parties | RL REGI NORTH CAROLINA, LLC, Plaintiff, v. LIGHTHOUSE COVE, LLC, Lighthouse Cove Development Corp., Inc., Glen C. Stygar, John R. Lancaster, Leticia S. Lancaster, Lionel L. Yow and Connie S. Yow, Defendants. |
| Court | North Carolina Court of Appeals |
OPINION TEXT STARTS HERE
Appeal by Plaintiff from order entered 22 March 2012 by Judge Allen Baddour and judgment entered 1 June 2012 by Judge Jay D. Hockenbury in New Hanover County Superior Court. Cross-appeal by Defendant Connie S. Yow from orders entered 22 March 2012 and 27 March 2012 by Judge Allen Baddour and judgment entered 1 June 2012 by Judge Jay D. Hockenbury. Heard in the Court of Appeals 13 March 2013.
Nelson Mullins Riley & Scarborough, LLP, Raleigh, by Christopher J. Blake, Joseph S. Dowdy, and Meghan E.B. Pridemore, for Plaintiff.
Shipman & Wright, LLP, Willmington, by Matthew W. Buckmiller, for Defendant, Connie S. Yow.
RL REGI North Carolina, LLC, (“Plaintiff”) appeals from an order entered 22 March 2012 denying Plaintiff's motion for summary judgment. Plaintiff also appeals from a judgment entered 1 June 2012 concluding Plaintiff violated the Equal Credit Opportunity Act, declaring void the guarantee agreement signed by Defendant Connie S. Yow on 11 April 2006, and denying Plaintiff's post trial motion for judgment on the verdict, or in the alternative, for judgment notwithstanding the verdict. Defendant Connie S. Yow cross-appeals from an order entered 22 March 2012 denying her motion for summary judgment, a 27 March 2012 discovery order, and, “[t]o the extent said Judgment is found to be in error[,]” the judgment entered 1 June 2012. We affirm the judgment of the trial court.
Plaintiff is the successor in interest to certain loans made by Regions Bank. Defendant Connie S. Yow executed an agreement guaranteeing two of those loans in April 2006 at which time she was married to Defendant Lionel L. Yow. Mr. Yow, along with Defendants Glen C. Stygar and John R. Lancaster (collectively the “LC owners”) formed two entities, specifically, Defendants Lighthouse Cove, LLC, and Lighthouse Cove Development Corp., Inc. (the “LC Entities”), for the purpose of acquiring a tract of land in Brunswick County, consisting of approximately fifty-seven acres (the “Property”) and developing a residential subdivision thereon to be known as Lighthouse Cove.
In early 2006, the LC Owners met with Alex King, a commercial lending officer with Regions Bank, to seek financing for the development project. In March 2006, Regions Bank provided a commitment to provide two loans (the “Loans”) to the LC Entities, as borrowers, for the acquisition and partial development of the Property. The aggregate amount committed for the Loans was $4,280,000.00. The commitment provided that the Loans would be secured by the real estate and guaranteed by the LC Owners. The Loans would also be guaranteed by the LC Owners' wives, including Defendants Leticia S. Lancaster and Connie S. Yow,1 though neither was an owner, officer or director of either of the LC Entities or otherwise involved in the development project.
In April 2006, the Loans closed under terms consistent with Regions Bank's commitment through the execution of various documents (the “Loan Documents”) by Defendants.
By 2009, the LC Entities were in default of their obligations under the Loans. In December 2009, Defendants executed a forbearance agreement with Regions Bank in which they acknowledged their obligations under the Loan Documents and in which Regions Bank agreed to modify certain terms. Subsequently, though, the LC Entities defaulted on their obligations under the forbearance agreement.
In September 2010, Regions Bank sold its interest in the Loans, with said interest ultimately being transferred to Plaintiff. Plaintiff filed an amended complaint in this action on 15 March 2011, seeking damages from Defendants relating to the alleged default by the LC Entities of their obligations pursuant to the Loans.2 On 18 April 2011, Defendants filed an amended answer and counterclaim. In this filing, Defendant Connie Yow asserted as an affirmative defense that Plaintiff's predecessor in interest, Regions Bank, unlawfully obtained her guaranty of the Loans in violation of the federal Equal Credit Opportunity Act (ECOA) codified in Chapter 15 of the United States Code.
On 31 October 2011, Plaintiff moved for summary judgment on all of its claims against all Defendants. On 17 January 2012, Defendant Connie Yow moved for summary judgment, in part, due to Regions Bank's alleged violation of the ECOA. On 22 March 2012, the trial court entered an order granting summary judgment in favor of Plaintiff on all claims, counterclaims and affirmative defenses, except its claim against Defendant Connie Yow for violating the guarantee agreement, concluding that there existed a genuine issue of material fact with regard to her ECOA affirmative defense.
On 21 May 2012, the matter came on for trial. The central issue was summarized by the trial court in its jury instructions:
[T]his is a case in which Plaintiff is seeking to recover a deficiency monetary judgment against Defendant, Connie S. Yow. On the other hand, the Defendant, Connie S. Yow, says that [Plaintiff] should not recover judgment against her because [Regions Bank, Plaintiff's predecessor in interest] violated the Equal Credit Opportunity Act.
The trial court submitted four questions to the jury. Based on the factual findings contained in the jury's special verdict, the trial court concluded that Regions Bank had procured the guaranty of Defendant Connie Yow (hereinafter, “Defendant”) in violation of the ECOA and that this violation constituted an affirmative defense; and, accordingly, the trial court entered judgment in favor of Defendant. From this judgment, Plaintiff appeals.
The ECOA is federal legislation which prohibits lending institutions from discriminating against any “applicant” on the basis of “race, color, religion, national origin, sex or marital status, or age[.]” 15 U.S.C. § 1691(a)(1). The Federal Reserve Board has promulgated rules interpreting the ECOA, known as Regulation B codified in 12 C.F.R. § 202.1, et seq. Section 207(d) sets forth rules which creditors must follow regarding, inter alia, their procurement of spousal guaranties. Specifically, the portions of section 202.7(d) relevant to this case provide the following with respect to spousal guaranties:
(d) Signature of spouse or other person— (1) Rule for qualified applicant. Except as provided in this paragraph, a creditor shall not require the signature of an applicant's spouse ... if the applicant qualifies [for the loan] under the creditor's standards of creditworthiness[.] ...
(2) Unsecured credit. If an applicant requests unsecured credit and relies in part upon property that the applicant owns jointly with another person to satisfy the creditor's standards of creditworthiness, the creditor may require the signature of the other person only on the instrument(s) necessary ... to enable the creditor to reach the property being relied upon [by the creditor to establish creditworthiness];
...
(4) Secured credit. If an applicant requests secured credit, a creditor may require the signature of the applicant's spouse ... to make the property offered as security available to satisfy the debt in the event of default, for example, an instrument to create a valid lien[.] ...
(5) Additional parties. If, under a creditor's standards of creditworthiness, the personal liability of an additional party is necessary to support the credit requested, a creditor may request [an additional person to serve as] a ... guarantor.... The applicant's spouse may serve as an additional party, but the creditor shall not require that the spouse be the additional party.
12 C.F.R. § 207(d)(1)-(2), (4)-(5).
In the case sub judice, four issues concerning Plaintiff deficiency claim and Defendant's ECOA defense were submitted the jury and answered on the verdict sheet as follows:
Issue One: Did Regions Bank seek the spousal guaranty of Defendant Connie S. Yow as additional support for the loans by Regions Bank to the Lighthouse Cove entities before making a determination of whether the applicants for the loans (the Lighthouse Cove entities, Glen Stygar, John Lancaster and her husband Lionel Yow) were independently creditworthy under Regions Bank's standards of creditworthiness?
After you answer Issue One please proceed to Issue Two.
Issue Two: Did Regions Bank, under its standards of creditworthiness, fail to make a determination that the personal liability of an additional party, defendant Connie Yow, was necessary to support the loans requested by the Lighthouse Cove entities for the real estate development project?
If your answer to Issue Two is “Yes” please proceed to Issue Four. If your answer to Issue Two is “No” please proceed to Issue Three.
Issue Three: Did Regions Bank require Connie Yow be a guarantor for the loans to the Lighthouse Cove entities?
After you answer Issue Three please proceed to Issue Four.
Issue Four: Did Regions Bank prior to April 11, 2006 routinely require as a condition of loans spousal guarantees without first ascertaining whether an applicant for credit is creditworthy under Regions Bank's standards of creditworthiness?
In its judgment, the trial court concluded that “[b]ased on the jury's answer ‘Yes' to Issue Three, the Court rules as a matter of law that Regions Bank violated the [ECOA] by discriminating on the basis of marital status, a ‘protected class' under the [ECOA].” The trial court further concluded that Defendant's remedy “is to allow her to use the violation of the [ECOA] by Regions Bank as an affirmative defense in the matter,” and Defendant was released from any liability under the Loans. From this judgment, Plaintiff appeals.3
In its brief on appeal, Plaintiff argues (1) that ...
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